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Gazprom Demands Rubles For LNG

Gazprom is proposing to extend the rubles-for-gas scheme to liquified natural gas (LNG), a senior executive said on Monday, days after Russia moved to take full control over the Sakhalin-2 LNG project.

The proposal for demanding payments in rubles for LNG came from Kiril Polous, who is in charge of Gazprom’s long-term development programs, during a parliament energy committee meeting, Russian news agency Interfax reported today.

Last week, a decree from Russian President Vladimir Putin said that a newly set up state Russian company would take over the rights and obligations of Sakhalin Energy Investment Co., the joint venture running the Sakhalin-2 oil and gas project. This could mean a forced exit from the project for Shell and Japan’s Mitsui and Mitsubishi, which are minority shareholders in Sakhalin Energy Investment Co. Shell already said it would leave the project a few months ago and has since then been looking for buyers for its stake in Sakhalin-2.

According to some analysts, the exit of the Western and Asian partners will eventually lead to tighter LNG supply due to the lack of expertise and parts. At the same time, selling the gas would become harder because of the state’s control of the project, Saul Kavonic from Credit Suisse told Reuters.

Russia already runs the ruble-for-gas payment system for the natural gas it sends to Europe via pipeline. Gazprom has already stopped supplying gas to countries and companies refusing to bow to the rubles demand—Poland, Bulgaria, Finland, as well as customers in the Netherlands, Denmark, and Germany.

Many European companies have set up accounts in rubles at Gazprombank to comply with Putin’s demand. Nevertheless, Gazprom slashed pipeline supply to Germany and Italy in the middle of June, claiming “technical reasons” and saying Western sanctions prevent a gas turbine being repaired in Canada from returning to Russia in time. Italy’s Prime Minister Mario Draghi dismissed this explanation, describing the Russian reasons for the reduced flows as “lies.”

With low supply from Russia and Nord Stream up for a two-week maintenance this month, Europe scrambles to fill gas storage in time for the winter.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on July 04 2022 said:
    And rightly so. After all the seller dictates in which currency he wishes to be paid for his goods. Gazprom is already selling its gas for rubles. So why not apply the same practice to LNG?

    Moreover, Russia is well advised to demand ruble payment for its exports of oil and petroleum products and also all other exports including wheat.

    Russia is also absolutely right to nationalize Shell’s 37.5% share in Sakhalin-2 LNG project since Shell decided to walk away from the project. Now Russia can buy Shell’s share at rock-bottom prices. Moreover, Russia neither needs Western technology nor Western finance. It has both as evidenced by Gazprom's and Novateck’s great successes in producing gas and LNG respectively from the Russian Arctic.

    For Russia, the more Western oil and gas companies withdraw from the country, the more assets Russia can get its hands on at next to nothing prices.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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